“The Latvian parliament is aware that fulfilment of the agreement made with the international donors is the only way to bring the country out of the economic crisis and restore credibility among international investors,” said Solvita Āboltiņa, during the meeting in Riga, the capital of Latvia, with Joaquín Almunia, the EU Commissioner for Economic and Monetary Affairs, on Tuesday, 13 October. 

“The only way to overcome the crisis is to fulfil those international commitments which we have assumed. I am confident that the Latvian parliament is aware of that, and we will accomplish this task,” pointed out the Deputy Speaker of the Saeima while talking about the process of preparing the budget for 2010. 

During the meeting, Commissioner Joaquín Almunia emphasised that the agreement concluded between Latvia and the International Monetary Fund and the European Commission clearly envisages that with regard to the 2010 budget, Latvia has to carry out fiscal consolidation measures amounting to an additional LVL 500 million; also, next year’s budget deficit cannot exceed 8.5 % of GDP. 

Members of some political forces represented in the Saeima expressed their concern regarding the negative impact of such significant fiscal consolidation on the living standard of the population and the entire country’s economy. The planned decrease of budget expenditures would worsen the social and economic situation of the inhabitants, especially of socially vulnerable groups. The Saeima members emphasized that the planned tax increase, in turn, will impede the growth of Latvia’s economy, which is already experiencing a recession. 

Mr. Almunia expressed the view that in order to renew economic growth, Latvia has no other alternative than to fulfil the commitment it signed and that any other alternative would only be worse. The EU Commissioner said: “I am convinced that this is the best way to achieve the recovery of the Latvian economy as soon as possible.”

“Now the Latvian government needs to show the global markets that imbalances of the Latvian economy will be reduced,” said Mr. Almunia in justifying the need to consolidate the public finances. He also explained that before the crisis Latvia had a very large current account deficit financed from direct foreign investments, and these investments have now completely stopped. 

The Commissioner was convinced that sticking to the agreement concluded with the international lenders will allow the Latvian economy to recover. Mr. Almunia stressed: “I am optimistic. If the adjustment takes place and if the recovery here in Latvia and other European economies will be confirmed, then in 2010–2011 a gradual recovery of Latvian economy will come.”

Joaquín Almunia rejected the proposal voiced by some Saeima members to moderate the Maastricht criteria in order to allow Latvia and the other Baltic States to join the euro zone earlier. “The treaty criteria will not be changed. A treaty is a treaty.” However, the Commissioner stressed that the bail-out agreement signed with Latvia was drafted by taking into account Latvia’s plans to switch to the euro. He continued: “When can the Latvian economy join the Euro? If the targets established are achieved, 2014 is a very reasonable date.”

Photos taken at the meeting are available on: www.flickr.com/saeima/. 

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